Security of payment

Goal: To make sure payments for subcontractors working in the building and construction industry are in full, on time, every time

The current payment system, where subcontractors are reliant on the contractors above them for their payment, can result in delayed payments to subcontractors or subcontractors not being paid at all for work.

The Government made an election commitment to review security of payment and to consult widely on the issue. The Security of Payment discussion paper was released in late 2015. Consultation revealed systemic problems within the building and construction industry.

Some of the problems that were identified during consultation were poor cash flow management and non-compliance with existing contractual requirements.

Feedback from industry revealed significant emotional, family and social costs that have resulted from a lack of security of payment.

The Government commissioned an economic and financial analysis of certain reform proposals that arose as a result of consultation. Independent legal advice on these proposals was also provided.

Proposals

The Government proposes to progress a package of reforms to improve security of payment for subcontractors. These proposals include:

  • Project bank accounts (PBAs) to apply to all government projects (excluding engineering projects) valued at between $1 million and $10 million from 1 January 2018. PBAs are trust accounts, proposed to be set up by the head contractor with the head contractors and subcontractors as beneficiaries. Under the proposed model, these beneficiaries will be the subcontractors who contract directly with the head contractor. The aim of PBAs is to safeguard progress payments from the head contractor to the subcontractor in the event of head contractor insolvency. The Government will roll out the PBA model to both government and private sector projects over $1 million from January 2019, subject to successful outcomes from implementation on government projects between $1 million and $10 million.
  • Amendments to the Building and Construction Industry Payments Act 2004 (BCIPA) are proposed to enhance the independence of the Adjudication Registry within the Queensland Building and Construction Commission (QBCC). Other amendments include improvements to the claims process.
  • Redrafting the Subcontractors’ Charges Act 1974 (SCA) to update its language to the current drafting style.
  • Education programmes for QBCC licensees aimed at improving financial management practices and business skills in the building and construction industry. It will also include information on the Personal Properties Securities Register and the BCIPA.
  • Combining Acts that relate to security of payment into the one Act. The Queensland Building and Construction Commission Act 1991 contains various provisions aimed at protecting payment to subcontractors. The BCIPA and the SCA specifically provide for security of payment. It is proposed to include in the one piece of legislation the BCIPA and SCA provisions, as well as legislative provisions relating to PBAs so that there is a ‘one stop shop’ for security of payment provisions.

Possible additional proposals

In addition, consultation revealed concerns about ‘unfair contracts’. For example, where ‘termination for convenience’ clauses can be used to avoid the BCIPA. The Government is interested in exploring options to address this issue.

Goal: To make sure payments for subcontractors working in the building and construction industry are in full, on time, every time

The current payment system, where subcontractors are reliant on the contractors above them for their payment, can result in delayed payments to subcontractors or subcontractors not being paid at all for work.

The Government made an election commitment to review security of payment and to consult widely on the issue. The Security of Payment discussion paper was released in late 2015. Consultation revealed systemic problems within the building and construction industry.

Some of the problems that were identified during consultation were poor cash flow management and non-compliance with existing contractual requirements.

Feedback from industry revealed significant emotional, family and social costs that have resulted from a lack of security of payment.

The Government commissioned an economic and financial analysis of certain reform proposals that arose as a result of consultation. Independent legal advice on these proposals was also provided.

Proposals

The Government proposes to progress a package of reforms to improve security of payment for subcontractors. These proposals include:

  • Project bank accounts (PBAs) to apply to all government projects (excluding engineering projects) valued at between $1 million and $10 million from 1 January 2018. PBAs are trust accounts, proposed to be set up by the head contractor with the head contractors and subcontractors as beneficiaries. Under the proposed model, these beneficiaries will be the subcontractors who contract directly with the head contractor. The aim of PBAs is to safeguard progress payments from the head contractor to the subcontractor in the event of head contractor insolvency. The Government will roll out the PBA model to both government and private sector projects over $1 million from January 2019, subject to successful outcomes from implementation on government projects between $1 million and $10 million.
  • Amendments to the Building and Construction Industry Payments Act 2004 (BCIPA) are proposed to enhance the independence of the Adjudication Registry within the Queensland Building and Construction Commission (QBCC). Other amendments include improvements to the claims process.
  • Redrafting the Subcontractors’ Charges Act 1974 (SCA) to update its language to the current drafting style.
  • Education programmes for QBCC licensees aimed at improving financial management practices and business skills in the building and construction industry. It will also include information on the Personal Properties Securities Register and the BCIPA.
  • Combining Acts that relate to security of payment into the one Act. The Queensland Building and Construction Commission Act 1991 contains various provisions aimed at protecting payment to subcontractors. The BCIPA and the SCA specifically provide for security of payment. It is proposed to include in the one piece of legislation the BCIPA and SCA provisions, as well as legislative provisions relating to PBAs so that there is a ‘one stop shop’ for security of payment provisions.

Possible additional proposals

In addition, consultation revealed concerns about ‘unfair contracts’. For example, where ‘termination for convenience’ clauses can be used to avoid the BCIPA. The Government is interested in exploring options to address this issue.